The recent paper on the Kalamazoo Promise, by me and my colleagues Brad Hershbein and Marta Lachowska, found that this program, which provides up to 100% free college tuition for graduates of Kalamazoo Public Schools, increases college completion sufficiently to have very high benefits. The program is estimated to have an annual rate of return of over 11%, and to offer a benefit-cost ratio of over 4 to 1. These benefits are estimated based on the likely higher earnings due to the additional college credentials induced by the Promise’s tuition subsidies. (See previous blog post for a summary of this study and its results.)

These returns are quite high. In my recent book, From Preschool to Prosperity, I estimate that high-quality preschool has a benefit cost ratio of a little over 5 to 1. I also estimate that high-quality child care/pre-K from birth to age 5 for disadvantaged families has a benefit-cost ratio of 1.5 to 1. A similar benefit-cost ratio of 1.5 to 1 is found for the Nurse Family Partnership, which provides pre-natal and parenting assistance to first-time disadvantaged moms from the pre-natal period until age 2. So the Kalamazoo Promise has a similar benefit-cost ratio to high quality preschool, and a higher benefit cost ratio than some high-quality earlier-age interventions.

This raises again the issue of earlier-age versus later-age interventions. Some in the policy community have sometimes argued as if there is some strong regularity, that earlier interventions almost always have higher rates of return.

“When we hear “early childhood education” we mostly think of pre-K. In fact, the earlier the intervention, the better. Helping pregnant moms avoid substance abuse is highly cost-effective, and then helping them through home visitation programs like Nurse Family Partnership in the first couple of years of life is crucial as well. By the time you get to age 4, it’s a little late, and children are so far behind that they never catch up.”

Mr. Kristof may be in part relying on a widely-circulated figure, which shows a rate of return to human capital investments at different ages at which the investment is made. The figure shows the rate of return as starting very high for investments made near birth, and then steadily declining as the age at which the investment is made increases.

This figure can be found at a variety of places around the internet; for example, see it in various materials at the website http://heckmanequation.org/ , such as at page 6 of this brochure.

This figure appears to go back to some research by Nobel-prize-winning economist James Heckman. He argued in a 2008 paper that

“As currently configured, public job training programs, adult literacy services, prisoner rehabilitation programs, and education programs for disadvantaged adults produce low economic returns. Moreover, for studies in which later intervention showed some benefits, the performance of disadvantaged children was still behind the performance of children who experienced earlier interventions in the preschool years…Remedial interventions for disadvantaged adolescents who do not receive a strong initial foundation of skills face an equity-efficiency tradeoff. They are difficult to justify on the grounds of economic efficiency and generally have low rates of return.”

I think this research by Heckman has been misinterpreted by some to imply that there is some iron law of human capital investments that earlier investments are always better and always have higher benefit-cost ratios. This is not true. Although later investments may have some limitations on whom they can reach, and how high a percentage effect they can have, well-designed later human capital investments often can have high rates of return and high benefit-cost ratios.

“Figure 8.5 [in this chapter] shows the returns per dollar invested for several types of programs with available cost-benefit analyses over the first 9 years of life by the age of entry into intervention. These include family-centered home-visiting programs, preschool and prekindergarten programs, full-day kindergarten, and class-size reduction programs…Although programs at all ages show evidence of positive economic returns exceeding $1 per dollar invested, preschool programs for 3- and 4-year-olds generally show the highest returns.” (Reynolds et al., p. 181)

Another recent paper, by Susan Dynarski, Joshua Human, and Diane Whitmore Schanzenbach, compared the cost-effectiveness of various policies, including policies at various ages, in increasing college enrollment. This analysis does not of course capture all benefits of these policies, but it does consistently analyze one benefit. They concluded the following:

“…The amount spent by Head Start to induce a single child into college is therefore $133,333….For Abecedarian [high-quality child care and pre-K birth to age 5 for disadvantaged families], the figure is $410,000….The amount spent in Project Star [the Tennessee experiment to reduce class size in grades K-3] to induce a single child into college is $400,000. If the program could be focused on students in the poorest third of schools…, then the cost would drop to $171,000 per student induced into college.

Upward Bound [which provided at-risk high school students with increased instruction tutoring, and counseling], if [it] could be targeted to students with low educational aspirations, [would have an] implied cost of inducing a single student into college [of] $93,667. .. The Social Security Student Benefit Program, which paid college scholarships to the dependents of deceased, disabled, and retired Social Security beneficiaries, [had a] cost per student induced into college [of] $21,000…The FASFA experiment, [which] randomly assigned families to a low-cost treatment that consisted of helping them to complete the FASFA, the lengthy and complicated form required to obtain financial aid for college, [had] an implied cost per student induced into college of $1,100. “

In a recent report on Michigan school finance by Kevin Hollenbeck and several Upjohn Institute colleagues, including me, we noted that a number of interventions from birth to age 18 have benefit-cost ratios of greater than one, if we focused on the increased present value of career earnings due to the intervention, compared to costs. (See previous blog post for a copy of the relevant table). Preschool and other early childhood interventions have high benefit-cost ratios; for example, high quality preschool has a ratio of increased future earnings to cost of 5.3, that is increased future earnings whose value is $5.30 for each dollar of investment. But later interventions also work. High-quality summer school for children who are academically behind has an increased future earnings to cost ratio of 9.0. High school career academies, that provide a more career-oriented education for students who are so inclined, have an earnings benefits to cost ratio of 8.7. Finally, a program of math tutoring for disadvantaged 9th graders, combined with cognitive behavioral therapy, has an estimated earnings benefits to cost ratio of 10.8.

What is one to make of all this? It is true that human brains are more malleable at earlier ages. Therefore, if we invest earlier, we can make a larger percentage difference to later outcomes. We can also make a larger difference to a greater variety of people, as options will not have been foreclosed by early damage to human development. As Heckman argued in his 2008 paper:

“Skills beget skills and capabilities foster future capabilities. All capabilities are built on a foundation of capacities that are developed earlier. Early mastery of a range of cognitive, social, and motional competencies makes learning at later ages more efficient and therefore easier and more likely to continue.”

But this also implies that these earlier investments have the highest returns when they are followed by later cost-effective investments. Heckman also argues in this 2008 paper that

“The advantages gained from effective early interventions are best sustained when they are followed by continued high quality learning experiences….Due to dynamic complementarity, or synergy, early investments must be followed by later investments if maximum value is to be realized.”

In other words, later investments also matter. These later investments may also have high rates of return.

What is true about later investments is that in order to be cost-effective, they have to be more targeted, in two senses. First, they have to be targeted at particular groups of people who at these latter ages are capable of greatly increasing their future prospects. Second, these later interventions have to be targeted at the particular barriers that are impeding progress, and that are not overcome by the normal operations of our society.

So, for example, the Kalamazoo Promise’s high estimate returns in our paper are due to our estimates that the program induces 12% of eligible students to get a post-secondary credential who otherwise would not do so. The other 88% of eligible students do not have their credential attainment affected in our estimates – either they would have received a post-secondary credential without the Promise, or the Promise was not enough to induce them to receive a credential, at least within the 6-year window post-high school considered in our paper. These 12% of “induced” students are affected by the Promise’s combination of a generous scholarship plus whatever cultural shifts in expectations and support accompany that scholarship offer. For at least this group of students, more money and changed attitudes help overcome a barrier to success. Furthermore, the Promise’s high returns occur for an urban school district, with many disadvantaged students, although the benefits seem to occur for both advantaged and disadvantaged students.

Some type of targeting is also helpful for other later interventions. Class-size reduction works best for low-income schools, as noted by Dynarski et al. above. Upward Bound works best when targeted at students with lower educational aspirations. Social Security benefits for college tended to target low-income students with high financial barriers to college. Help in completing financial aid forms will only help the future economic prospects of high school seniors who have the skills needed to effectively use the increased financial aid that results. Summer school works for students who are academically behind but motivated to improve. Career academies work for some students interested in career-oriented education, who have the capabilities in high school to respond to this alternative approach. Math tutoring and cognitive behavioral therapy is targeted at disadvantaged ninth graders, and is specifically oriented towards overcoming some of the hard skill and soft skill issues for this group.

What about earlier-age interventions? Although brains are more malleable at earlier ages, and therefore the potential benefits of earlier interventions may be greater in percentage terms, costs may sometimes be greater as well. Particularly in infancy, many interventions have to be one-on-one or have very small class sizes in order to be high-quality, which raises the cost per child. This may be part of the reason for the finding, in both my work and the work of Arthur Reynolds and his colleagues, that high-quality preschool tends to have greater benefit-cost ratios than some earlier-age investments. As I said in my 2014 book, From Preschool to Prosperity,

“Pre-K services at ages three and four target an age range that is a “sweet spot”: the child’s brain is still malleable enough for modest interventions to have large long-run effects, but the child is old enough that the child is ready to learn in larger groups that are cost-effective to run.” (p. 50)

In sum:

Investments at a wide variety of ages can have very high benefit-cost ratios.

Later investments may need to be more targeted in what groups are served, or what services are provided, in order to obtain high benefit-cost ratios.

Early investments may yield the largest percentage effects, but sometimes can be more costly, which can hold down their benefit-cost ratios.

The best strategy includes well-designed investments at a variety of ages, as such investments complement each other.

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About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.